BIR Ruling No. 326-12

May 4, 2012 BIR RULING NO. 326-12 R.A. 7279; (BIR Ruling 342-2011 dated September 8, 2011) Matares Homeowners' Association, Inc. Resolution St.,Area-C Talanay Batasan Hills, Quezon City Attention: Benjie M. Bulatete President Gentlemen : This refers to your letter dated January 17, 2011 requesting for a ruling that the sale of a parcel of land by ABELIM Corporation to MATARES Homeowners' Association, Inc. is exempt from the payment of capital gains tax pursuant to Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that ABELIM Corporation is the owner of a parcel of land located at Area-C Talanay, Batasan Hills, Quezon City. The subject property is covered by Transfer Certificate of Title (TCT) No. RT-30805, (318645) issued by the Registry of Deeds for Quezon City and consisting of an area of one thousand four hundred sixty two (1,462) square meters. MATARES Homeowners' Association, Inc. with Tax Identification No. (TIN) 236-927-242-000, on the other hand, is a legal association of underprivileged and homeless citizens registered on March 15, 2005 with the Housing and Land Use Regulatory Board. On January 17, 2011, a Deed of Absolute Sale was executed by and between ABELIM Corporation and MATARES Homeowners' Association, Inc. whereby the former transfers in favor of the latter the above-described land under the Community Mortgage Program (CMP) of the Social Housing Finance Corporation (SHFC) at an agreed price of Two Million Six Hundred Thirty One Thousand Six Hundred Pesos (P2,631,600.00).The said organization had secured a housing loan under the CMP, a financing assistance program of the Social Housing Finance Corporation (SHFC),a subsidiary of the National Home Mortgage Finance Corporation (NHMFC),as certified to by Atty. Fermin T. Arzaga, President of SHFC, and as such is deemed as a CMP Project where the property shall be proportionately distributed to the association's qualified member-beneficiaries, namely: CEaDAc Name of Beneficiaries Blk. No. Lot. No. Total Area (sq. m.) 1. ROBERTO S. CARIO 1 1 30.96 2. KEVIN O. CARIO 1 2 30.99 3. ERAA C. DE JESUS 1 3 30.86 4. MARIECRIS C. GADITANO 1 4 30.56 5. MARIA CLARIFE E. GADITANO 1 5 30.67 6. LOVELY E. GADITANO 1 6 30.84 7. MARIA THERESA E. GADITANO 1 7 30.60 8. ELMER O. GADITANO 1 8 30.64 9. CHONA L. AGUILAR 1 9 32.18 10. FLORDELIZA E. SIBAYAN 1 10 32.70 11. SHERIN JOYCE L. AGUILAR 1 11 31.86 12. DYNALYN D. DEIMOS 1 12 30.89 13. BENJIE M. BALATETE 1 13 33.04 14. JOSEFINA B. SEPEDA 1 14 47.47 15. ERLINDA T. ORIAS 1 15 36.97 16. ANGELINA S. GUMOBAL 1 16 47.19 17. CHARITO C. DELA CRUZ 1 17 44.68 18. FERDINAND O. CARIO 1 18 30.91 19. WILHEMINA G. BALBIN 2 1 33.59 20. JASMIN B. SEPEDA 2 2 33.64 21. ARLENE T. BONDOY 2 3 34.57 22. MARIA LOIDA C. DAHILDAHIL 2 4 28.07 23. DEMY C. DAHILDAHIL 2 5 28.58 24. ANTONIO C. CAMASUELA 2 6 28.74 25. CYRINE L. RAMOS 2 7 31.16 26. VICTOR E. LATOZA 3 1 29.43 27. GEORGE REY E. BALBIN 3 2 28.86 28. LEONARDA G. BALBIN 3 3 29.23 29. MARICEL N. ESTUDILIO 3 4 30.50 30. NARCISO C. CERBAS 3 5 33.92 31. MARLYNE N. ESTUDILIO 3 6 30.32 32. CATHERINE F. RICOHERMOSO 3 7 37.93 33. ROSEMARIE F. NOCHETE 3 8 38.08 34. JOSEPHINE PRIMA T. TABBU 3 9 30.91 35. JENELYN T. TABBU 3 10 30.50 In support of its request, MATARES Homeowners' Association, Inc. has completely submitted on November 18, 2011 the following documents: 1. Written Application for Exemption; 2. Duplicate Original of the Deed of Absolute Sale; 3. Certified true copy of the Transfer Certificates of Title No. RT-30805, (318645); 4. Certified true copy the Tax Declaration; 5. Certification from the SHFC that the purchase of property qualifies under CMP; 6. Certified true copy of the Certificate of Registration of UMPONGAN with the HLURB; 7. Certified true copy of the Articles of Incorporation and By-laws of the MATARES Homeowners' Association, Inc. ; 8. Copy of the Master-list of qualified beneficiaries; 9. BIR Certificate of Registration of seller and buyer; and 10. Certified True Copy of the Approved Subdivision Plan. In reply, please be informed that pursuant to Sections 20 and 32 of RA No. 7279, pertinent portions of which state that: "Sec. 20. Incentives for Private Sector Participating in Socialized Housing. To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: (d) Exemption from the payment of the following: ISTDAH xxx xxx xxx (2) Capital gains tax on raw lands used for the project; xxx xxx xxx Sec. 32. Incentives. To encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives: xxx xxx xxx (b) Properties sold under the CMP shall be exempted from the capital gains tax; and" xxx xxx xxx the landowner who sold his property for use in a socialized housing project is exempt from the payment of capital gains tax. It is noted, however, that out of the total consideration of Php2,631,600.00 for the sale of the subject property, only the amount of Php2,535,226.50 was obtained from the SHFC as CMP loan and the difference of Php96,373.50 was paid by the Association in the form of equity. Such being the case, ABELIM Corporation is only exempt from the payment of capital gains tax and expanded withholding tax corresponding to the portion of property paid under the CMP loan. (BIR Ruling 342-2011 dated September 8, 2011) Furthermore, the documentary stamp tax is not one of the taxes covered by the tax exemption clause in Sec. 20 of RA 7279. Accordingly, ABELIM Corporation is liable to pay the documentary stamp tax on the documents conveying the property imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realty or its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the selling price per sale transaction of the lots in this case does not really exceed P150,000.00 or P180,000.00 as the case may be, for each qualified beneficiaries (now P400,000.00 per HUDCC Resolution 1-2008 dated December 11, 2008). Moreover, any transfer of the real property from the said association to the individual members thereof is not subject to either the capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997, or the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended, considering that the said transfer/transaction is merely a formality to finally effect transfer of titles of the real property to the member-beneficiaries who actually bought the same. Such lack of consideration does not, likewise, render the transfer subject to the donor's tax imposed under Section 99 of the Tax Code of 1997, since there is no intention on the part of the association to donate said property to the members considering that the members of the association could not donate properties the ownership of which belongs to themselves (member-beneficiaries). CEDHTa Furthermore, the deed to be executed by MATARES Homeowners' Association, Inc. to effect the aforesaid transfer in favor of its individual members is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. Finally, upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Certificates of Title of the land to be issued in the name of the beneficiary association of the socialized housing program shall be caused to be annotated by the Register of Deeds having jurisdiction over the properties, to the effect, that the said properties shall be used for socialized housing pursuant to RA No. 7279. Notwithstanding the foregoing, the Bureau of Internal Revenue shall conduct verification and post-audit that the actual occupants of the properties transferred under the CMP are qualified beneficiaries and therefore, the sellers are entitled to exemption from capital gains tax or income tax imposed under the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, and/or any of the requirements set forth in this letter are not complied with, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue